franchisors - Duell

Oct 03

Is Bigger Always Better?

By Richard Duell lll Newsletter

Many years ago I represented a franchising company with a philosophy that the sale of franchises was paramount no matter how it was done. The company stressed franchise sales so much that their only qualification to become a franchisee of the company was whether the prospect had enough available credit to pay the initial franchise fee. As the company began selling more franchises, problems began to occur. With no solid foundation upon which the company had been built, litigation became common-place. The more sales – the more litigation. The company continued to ignore the real problems and adopted a mindset that even if only 50% of new franchisees survived, the company would still grow.

Imagine a franchise company with a Franchise Disclosure Document (“FDD”) which told the story of a 50% failure rate! But how could this franchise company have expected anything more? Signing up franchisees who did not have sufficient capital to run a business was a death spiral. The franchisees started business with two strikes against them. It wasn’t long until the franchisor found that franchisees who weren’t able to pay royalties and who were losing their businesses, led to multiple lawsuits which then led to a complete drain on the franchisor’s resources, and ultimately the demise of that company.

So is bigger always better? The answer is definitely no if the company fails to start with a solid foundation under it. A solid, successful foundation starts with a truly good management team. In the beginning, that team may consist of franchisees or that team may consist of only a couple of key people. As your company grows, search for and bring in qualified team members who understand the market, your competition and the kind of franchisees that will help your company get name recognition and dominate in your field. Perhaps you are in that interim stage where you are not quite big enough to attract the team members you know you need. Consider using a Consultant who has the expertise you need and can fill the void until you are able to afford those essential members on your team. There are any number of good franchise consultants who have the essential knowledge needed and have the years of experience that help provide the solid foundation you may be lacking.

So before your company leaves the starting gate, make sure you have the building blocks under it to be successful. Build the team that will lead your company to success. Use consultants when necessary to bridge the gap. Create a plan that helps your franchisees become successful. Successful franchisees build a successful franchise system. With a solid foundation you can then have the type of company that can be as big as you want it to be!

Thank You!

A special thanks to our clients who have called expressing their appreciation for the articles in Franchisor Alert® and have given us ideas for future articles. Your support makes a difference!

If you are a franchisor wondering if expansion is right for your business, feel free to reach out to us at 205.408.3025 or email info@DuellLaw.com.

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Nov 03

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A Paradigm for National Accounts

By Richard Duell lll Newsletter

Technically a National Account or National Customer is one with two or more locations and structured decision making power within an organization. However, most everyone tends to associate a National Account as that of a client or customer that has locations throughout the country. Irregardless of the true definition, few Franchisees have the resources to negotiate national contracts or the ability to provide and deliver the services and products which the national client demands. Consequently, most National Accounts will not deal with a multiplicity of Franchisees but, instead will only negotiate with a single contracting source, the Franchisor. New Franchisors have had the benefit of watching the market place grow and have reserved the right to deal with National Accounts in their franchise agreements. More established franchise companies, on the other hand, have older contracts which convey “exclusive territories” with no right reserved for Franchisors to deal with the exclusive territory. National Accounts, however, want a single contracting source that can promise uniform service throughout the country and national discount prices. Under our old way of looking at the Franchisor-Franchisee relationship, we would approach the problem and attempt to resolve it by the Franchisor securing the national contract and attempting to retain all of the benefits flowing from the contract. This old way of thinking had its legal impediments and often led to litigation between Franchisor and Franchisee. In today’s marketplace, why not create a new paradigm, with both the Franchisor and Franchisee participating in the revenue stream. Unheard of you say, but what better way to strengthen the franchise system and create a win-win for your company and your Franchisees. Franchisees can significantly increase their revenue because they will have access to National Accounts and as a Franchisor your royalties will increase because your Franchisees sales will increase.

Also, as many businesses expand and buy out smaller vendors what better way to provide an answer to the age old Franchisee question of, “what have you done for me lately.” The answer could now be – look at your bottom line.

CONCLUSION

As the paradigm of traditional franchising changes, Franchisees can win by participating in National Account programs and Franchisors can also win by watching their bottom line grow from the increased royalty revenues generated by their Franchisees participation in the National Account programs.

If you are a franchisor who has any questions about National Accounts and/or National Customers, feel free to reach out to us at 205.408.3025 or email info@DuellLaw.com.

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Oct 14

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Qualifying And Selecting Franchisees

By Richard Duell lll Newsletter

One of the most important decisions you will make when franchising is finding the right Franchisee. To be successful as a Franchisor you must have successful Franchisees. The essential question then becomes how to select good Franchisees.

Step One: Determining criteria for a successful Franchisee.

What leads so many start-up franchise company’s to a path of litigation is the mindset that they must sell to the first warm body that calls inquiring about their franchise.

I remember the lesson I learned from one of my first franchise cases. The Franchisor required the Franchisee to be heavily involved in selling and converting leads. When I deposed the dissident Franchisee, he had no previous sales experience, had no experience hiring sales people and hated cold calls or selling face to face. Obviously the Franchisor had not done their homework. The chances of the Franchisee ever being successful were slim. Therefore, determine your criteria for a successful Franchisee from the very start.

Step Two: Qualifying prospective Franchisees. Key to successfully qualifying prospective Franchisees is building a chart containing each ingredient that makes up a successful Franchisee.

If you are an entrepreneur who founded the franchise company, you undoubtedly can look back on your experiences of what it took to make your prototype successful. But just as importantly, do you know what traits are needed to succeed as a Franchisee? Is the Franchisee value driven? What was his or her previous business experience? Was the Franchisee successful in that business? What kind of net worth does the prospect have to launch the franchise? Obviously a prospective Franchisee cannot be successful if he or she has to have 100% financing to open the doors to do business. It takes awhile before a Franchisee can net any money out of the business. As a result, it is critical that you determine a prospect’s work ethic. No matter how you try to glamorize franchising, it still takes good old fashioned hard work to be successful.

After developing the profile of what you believe the requirements are for a prospect to be successful, work with your key personnel to create protocols in your company for finding the type of prospect you know should be successful. I say “should”, because we all know what can go afoul sometimes does go afoul, no matter what safeguards we put in place.

Once you have established the profile for a prospect, you are ready for the final test. Successful Franchisors I have observed go one step beyond developing the template for an ideal Franchisee.

The Final Step: The interview process. Focus on whether the prospect is the type of person you want representing your company. What are their goals and objectives and perhaps as importantly, will the individual you choose actually follow your franchise system? There are any number of industry tests available to assist you, but you want to make sure the prospect is a team player and not someone who after two or three months in the system will want to do things their way. What a waste of resources when you fail to properly qualify an individual who should never have been in a franchise system to start with. Usually the end result is termination and/or litigation.

CONCLUSION

The criteria you establish should be designed to produce the best possible candidate to represent your company. Don’t ever forget that all your hard work to build the company’s name can go up in smoke with one bad Franchisee, so choose wisely.

If you are a franchisor who has any questions about qualifying and selecting franchisees, feel free to reach out to us at 205.408.3025 or email info@DuellLaw.com.

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Sep 10

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Confidentiality Agreements: Do They Work?

By Richard Duell lll Newsletter

To determine the enforceability of Confidentiality Agreements, Franchising companies must be able to answer three questions affirmatively.

First, does your confidentiality agreement contain information which is outside the public domain or does it contain information compiled or combined in a unique way as the result of your business efforts? In the vast majority of business format franchises, information is one of, if not the most valuable asset of a franchise system and it is the compilation and use of that information which forms the foundation of the franchise system. This is what distinguishes your franchise from any other business.

The second area that must be examined is whether the subject matter deemed to be confidential derives value from its secrecy. If the actual loss caused by the violation of confidentiality provisions results in no damage to the party seeking protection, how can liability be imposed on a wrongdoer? It does not matter whether your entire franchise system uses special recipes or, for that matter, anything your franchise company may deem to be confidential in nature, you must be prepared to show it has value and how your company has been damaged.

The final question of our tripartite equation, is probably the most important, did the party seeking protection take reasonable precautions to maintain the secrecy of the material claimed to be confidential? It is not enough for your franchise company to argue that the parties to whom knowledge of the alleged confidential material is imparted to – should have known better. The burden is on your franchise company to show that reasonable precaution to prevent unauthorized disclosure is in place. The determination of whether “reasonable precaution” was taken ultimately rests in the discretion of the trial court. As a result, you must demonstrate that not only is the information deemed to be of substantial value to your franchise system but that your company took the necessary precautions to preserve the integrity of your information, even when that information may have been voluntarily provided to third parties. So how can a Franchisor show its protection of confidential information? One way that trial courts recognize is to show that there is a process in place to protect the information through use of third party confidentiality agreements. This contractual protection is an affirmative step by your company to set out a third party’s acknowledgement that the information or material being divulged is done so under limited parameters and further, it sets out the consequences for misappropriation. Additionally, contractual protections should be supplemental by a proactive strategy to monitor franchisee compliance.

Beyond securing secrecy for your company, there is an indirect benefit of a psychological impact on your franchise system by demonstrating your company’s regard for the confidential information and its commercial sensitivity.

CONCLUSION

Your confidential information is a valuable asset in your franchise tool box for the success of the franchise system. By taking steps to proactively protect and prevent trade secret leaks, you will create positive dollars to your company’s bottom line.

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Aug 02

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Saving Dollars By Using Intranets

By Richard Duell lll Newsletter

Does your staff spend a significant amount of time mailing or faxing new manual updates, newsletters, reports or a variety of other information to your franchise system? Are you apprehensive about sending confidential information over the Internet? If your answer to either question is yes, you should consider implementing a plan to establish an Intranet site. If you think your company is too small for its own Intranet site, then this article is definitely for you.

An Intranet site, as opposed to internet is a company internal site with limited access. By using encryption technology and limiting access to persons with passwords, the site is not available for public view like normal internet sites. With a secure Intranet site a franchise company can feel comfortable in sending franchisees information, such as:

Training documents, manuals, reports and other information normally copied or printed and sent through the mail;
Software upgrades for immediate use;
Newsletters;
Continued updating of approved vendor lists;
Changes in personnel directories, with the latest areas of responsibility;
Last minute vendor close outs;
And the list goes on and on.

It shouldn’t take too long to see that the above list just touches the surface of potential uses for an Intranet. In fact, not only can a Franchisor disseminate information over an Intranet site, but franchisees in the system can share ideas and experiences with other franchisees by using an Intranet bulletin board. Some Franchisors use their Intranet for franchisee reporting. By compiling the reported franchisee information over a period of time, Franchisors can analyze the reports and help franchisees strategically plan for the future or help them correct existing problems.

If a Franchisor’s Intranet site is set up to allow vendors limited access, franchisees can order supplies over the site from approved vendors with password access and guess what – your franchise company now has a new means to monitor franchisee orders and an additional tool to discover under reporting (See Franchisor Alert February 2016 “Do You Have Under Reporting Franchisees?” for other under reporting tools).

The potential uses for an Intranet site are unlimited and as a client with less than forty franchisees told me: “By eliminating many of our costly and inefficient methods of doing business, our site will pay for itself, but more importantly, our relationship with franchisees is at an all-time high. If I was starting my company again, I would have an Intranet site before I sold my first franchise.”

CONCLUSION

In Franchising it is important to never be satisfied with mediocrity. Intranets have proven to be successful in Franchising and can help provide value to your bottom-line.